What to watch for as 4th quarter earnings news rolls in

With fourth-quarter earnings seasons hitting its stride, investors are returning to the familiar comfort of cold, hard numbers — the press releases, conference calls and spreadsheets that provide a real view of corporate America’s performance.

Trading has been dominated for months by speculation about news events: Washington’s perpetual state of gridlock, the impact of Superstorm Sandy, the international economic slowdown. Earnings give professional market-watchers something tangible to analyze.

This week will bring answers to questions that have hung over the market for months.

Big U.S. companies are increasingly reliant on sales to China, and growth there appears to be slowing. This round of earnings will shed light on how hard the slowdown is hitting American companies.

The messages so far are mixed. When Alcoa announced its results on Jan. 8, executives said they expect sales to grow by 7 to 10 percent in 2013, thanks to “the wealthier middle class” and “the general uptick in the Chinese economy.”

Announcing its fiscal second quarter results last month, however, Nike said China was the only region where revenue declined. Executives said they expect lower income from China in the coming quarters as they work to build a strategy around Chinese consumers.

Traders will learn more from earnings announcements by companies like McDonald’s (on Wednesday) and 3M (on Thursday).

In 2011, 3M generated 41 percent of its operating income in the Asia Pacific region, compared with 26 percent in the U.S. McDonald’s generated 22 percent of its revenue in the region that includes Asia, compared with 32 percent in the U.S.

The government said Thursday that U.S. builders started work on homes in December at the fastest pace in 4 {lcur} years, and that last year was the best year for residential construction since the early stages of the housing crisis.

It was the latest announcement to lift homebuilder stocks, which have been on a tear as evidence mounts that the housing market has finally regained some momentum. Homebuilders in the Standard & Poor’s 500 index have shot up 23 percent since their recent low on Nov. 14. Already this month, seven homebuilders have hit 52-week highs on heavy trading volume.

This week brings more data on sales of new and existing homes in December. If the numbers look weak, analysts say, homebuilder stocks may appear overbid and the rally may pause until earnings results arrive from big players like D.R. Horton Inc. (Jan. 29) and PulteGroup Inc. (Jan. 31).

Superstorm Sandy had broad, negative economic effects, like keeping holiday shoppers home and wiping out disposable income. But its most direct impact was on insurers. Risk modeling firm AIR Worldwide says storm-related losses covered by insurers could total $16 billion to $22 billion.

This quarter’s earnings will give traders their first look at how hard Sandy hit the major property and casualty insurance companies.

Reporting on Friday, auto insurer Progressive Corp. said Sandy cost it about $15 million in December, contributing to a decline in net income of 3 percent from the same quarter a year earlier. The Travelers Cos. Inc., one of the 30 stocks in the Dow Jones industrial average, reports its results on Tuesday. ACE Ltd. reports on Jan. 29.

Tech companies have been vocal about the challenges they face. Of the 32 tech companies that gave earlier guidance about their fourth-quarter performance, more than 90 percent were negative, Butters says. The usual number is closer to 50 percent, he said.

One troubling sign Thursday was Intel Corp.’s announcement that weak demand for personal computers caused its fourth-quarter net income to fall 27 percent and its revenue to decline 3 percent. Intel also predicted a low single-digit percentage increase in revenue this year.

The tech portion of the S&P 500 has relied on Apple for its growth in recent quarters. But many analysts expect Apple to post its first year-over-year decline in quarterly earnings since 2003 when it reports on Wednesday. That’s a big reason why analysts expect tech to be the second-worst performing sector of the 10 industry groups in the S&P 500, Butters says. They expect an industry-wide decline in earnings of 3 percent.

For Apple, it will be “a pivotal quarter,” says Kevin Pleinis, equity market analyst at Birinyi Associates, a stock market research and money management firm. Apple’s stock has lost 29 percent of its value since closing at a record $702.10 on Sept. 19. The sell-off was based on vague news reports about demand for iPhones.